Correlation Between IShares Basic and First Trust

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Can any of the company-specific risk be diversified away by investing in both IShares Basic and First Trust at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining IShares Basic and First Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between iShares Basic Materials and First Trust Materials, you can compare the effects of market volatilities on IShares Basic and First Trust and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in IShares Basic with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Basic and First Trust.

Diversification Opportunities for IShares Basic and First Trust

0.98
  Correlation Coefficient

Almost no diversification

The 3 months correlation between IShares and First is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding iShares Basic Materials and First Trust Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Materials and IShares Basic is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on iShares Basic Materials are associated (or correlated) with First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Materials has no effect on the direction of IShares Basic i.e., IShares Basic and First Trust go up and down completely randomly.

Pair Corralation between IShares Basic and First Trust

Considering the 90-day investment horizon iShares Basic Materials is expected to generate 0.83 times more return on investment than First Trust. However, iShares Basic Materials is 1.21 times less risky than First Trust. It trades about -0.56 of its potential returns per unit of risk. First Trust Materials is currently generating about -0.58 per unit of risk. If you would invest  14,620  in iShares Basic Materials on September 23, 2024 and sell it today you would lose (1,502) from holding iShares Basic Materials or give up 10.27% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

iShares Basic Materials  vs.  First Trust Materials

 Performance 
       Timeline  
iShares Basic Materials 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days iShares Basic Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Etf's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the ETF investors.
First Trust Materials 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days First Trust Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Etf's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the ETF investors.

IShares Basic and First Trust Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with IShares Basic and First Trust

The main advantage of trading using opposite IShares Basic and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Basic position performs unexpectedly, First Trust can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in First Trust will offset losses from the drop in First Trust's long position.
The idea behind iShares Basic Materials and First Trust Materials pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.

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